When the Section Referred to Doesn’t Exist

If a cross-reference points to a section that isn’t found in the document, that’s obviously a problem. And it happens more than you might think. This error was found in 95% of EDGAR documents analyzed.

Here’s an example from Section 9.4(c) of an agreement between Hines Global REIT 550 Terry Francois LP and MB 550 TFB, Inc. dated January 18, 2019:

If the actual, aggregate amounts that have been collected under the Lease for Operating Expense Recoveries for calendar years 2018 and 2019 constitute a lesser amount than would have been owed by Tenant if the reconciliation under the Lease was completed as of the Closing Time based on the operating expenses incurred by Seller for calendar year 2018 and 2019 up to the Closing Time (as prorated pursuant to Section 10.4(a) above), Purchaser will pay such difference to Seller at Closing as an addition to the Purchase Price.

Section 10.4(a) doesn’t exist. In fact, Section 10.4 doesn’t exist at all. The reference should have been to Section 9.4(a).

This particular document is something of a poster child for errors that could have been avoided with CrossCheck 365. It appears that an article was removed (or moved) from the middle of the document, probably late in the drafting phase. All of the articles and sections were renumbered to be sequential, but, alas, the cross-references were not updated to reflect the new outline. There are 90 cross-reference errors in this single document.

One more example from Section 1.1 of the same document:

“Closing Surviving Obligations” means the covenants, rights, liabilities and obligations set forth in Sections 2.4, 3.3, 4.5, 4.7, 5.2(b), 5.3, 5.5, 5.6, 7.3, 8.1 (subject to Section 16.1), 8.2 (subject to the limitations therein), 10.4 (subject to the limitations therein), 10.6, 10.7, 10.9, 11.1, 12.1, 13.3, 15.1, 16.1, 17.2, 17.7, 17.8, 17.10, 17.11, 17.14, 17.15, 17.16, 17.17, 17.20, 17.23, 17.24, 17.25, 17.26, 17.27, 17.28, 17.29, 17.30, 17.31, 17.32, 17.33 and 17.34.

None of the bolded sections exist in the document, and it can be safely assumed that the references to 11.1, 12.1, 15.1, and 16.1 were incorrect as well, although those sections do exist.

If a referenced section exists but it’s the wrong section, CrossCheck 365 can’t (in most cases) know the author’s intent, and so it can’t flag the mistake. The exceptions are (i) when the caption of the section is set forth after the reference (e.g., “Section 9.1 (Governing Law)”), in which case CrossCheck 365 compares the captions, or (ii) when “above”, “below” or “this” is used in a way that doesn’t correspond to the location of the referenced section.

Inserting the caption after each cross-reference is a good practice, but doing so for hundreds of cross-references quickly becomes tedious. It’s no surprise that it’s not usually done.